Author: Gary Moore

Date: 02 June 2017

The object of the Broad-Based Black Economic Empowerment Act, 2003[1] is to facilitate broad-based black economic empowerment[2] (“BEE”)[3] by[4] achieving substantial change in the racial composition of ownership and management and in skilled occupations of enterprises.[5]

The Act states that a person commits an offence if he knowingly[6] misrepresents[7] an enterprise’s BEE status[8] or engages in a fronting practice.[9] A person convicted is liable to a fine or up to ten years’ imprisonment[10] or both, or (if not a natural person) to a fine.[11] To determine the amount of a fine the court must take the transaction value in account.[12]

The Act has a provision[13] laying down an additional penalty. Its first subsection states that any person convicted of an offence in terms of the Act may not contract or transact business with an organ of state or public entity for ten years from the date of conviction.[14]

On the face of it this means anyone convicted is automatically prohibited from such dealings with a state or public body for ten years, even for minor transgressions and even if the convicted person’s clientele consists only of public bodies. This is disproportionate.

This automatic added penalty thus violates the Rule of Law principle that laws should protect fundamental rights,[15] which include the right not to be subject to unusual punishment[16] and the right to choose an occupation freely.[17]

Juristic persons are also entitled to these fundamental rights,[18] it is submitted.[19] (But if juristic persons were not entitled to those rights, this would in practice be immaterial because wide categories of persons have standing[20] to seek relief to enforce any fundamental right.[21])

As stated, the Act’s provision in question[22] in its first subsection[23] states any person convicted of an offence in terms of the Act may not deal with a public body for ten years.

The provision has a second subsection, stating that, if the convicted person is not a natural person, the court may[24] restrict “the order contemplated” in its first subsection[25] to those members, directors or shareholders[26] who contravened[27] the provisions[28] of the Act.[29]

This implies the first subsection lays down that, only if the court so orders, is a convicted person prohibited from dealings with a state body for ten years.

Yet the first subsection does not expressly contemplate the court issuing such an order. The first subsection is to the effect that a convicted person is automatically so prohibited. [30]

The indication in the second subsection that the first subsection contemplates such a court order introduces doubt about the interpretation of the first subsection. This violates the Rule of Law principle that the law should be clear.[31]

[1] Broad-Based Black Economic Empowerment Act 53 of 2003 (“the BEE Act”).

[2] The viable economic empowerment of “black people” (Africans, Coloureds and Indians) through diverse socio-economic strategies. BEE Act s 1 svv “broad-based black economic empowerment,” “black people”.

[3] BEE Act s 2.

[4] Inter alia.

[5] BEE Act s 2(b).

[6] “Knowingly” means the person either: Had actual knowledge of the matter; or Was in a position in which she reasonably ought to have: had actual knowledge of the matter, or investigated it to an extent that would have provided her with actual knowledge, or taken other measures reasonably expected to have provided her with actual knowledge. BEE Act s 1 sv “knowingly.”

[7] Or attempts to misrepresent.

[8] BEE Act s 13O(1)(a). Or [redundantly] provides false information to an organ of state or public entity relevant to assessing an enterprise’s BEE status: s 13O(1)(c).

[9] BEE Act s 13O(1)(d) rw s 1 sv “fronting practice” (see below).

[10] The fine currently corresponding to ten years imprisonment is R400,000. Adjustment of Fines Act 101 of 1991 s 1(1)(a) read with Magistrates’ Courts Act 32 of 1944 s 92(1)(b) and Govt Notice 217 of 27 Mar 2014.

[11] Of up to ten percent of its annual turnover. BEE Act s 13O(3)(a).

[12] BEE Act s 13O(4).

[13] BEE Act s 13P (Prohibition on business with organs of state following conviction under this Act).

[14] And must be recorded in a “tender defaulters” register maintained by the Treasury. BEE Act s 13P(1).

[15] Lord Bingham, “The Rule of Law.” Sixth Sir David Williams Lecture, 2006. Centre for Public Law, University of Cambridge: fourth sub-rule.

[16] Everyone has the right not to be treated or punished in a cruel or degrading way. Constitution of the Republic of South Africa 1996, Ch 2 (Bill of Rights), s 12(1)(e).

[17] Every citizen has the right to choose their occupation freely (albeit that the practice thereof may be regulated by law). Constitution Ch 2 (Bill of Rights) s 22.

[18] A juristic person is entitled to rights in the Bill of Rights to the extent required by the nature of the right and the person. Constitution s 8(4). Many fundamental rights will be fully recognised only if afforded to juristic as well as natural persons. In re: Certification of the Constitution of the Republic of South Africa 1996, 1996 (10) BCLR 1253 (CC) par [57].

[19] Juristic persons are probably entitled to the right in the Bill of Rights not to be treated or punished in a cruel or degrading way (s 12(1)(e), fn 16 above). There are countless small companies that need and deserve protection no less than do natural persons. In re: Certification of the Constitution of the Republic of South Africa supra fn 18 par [58].

And the word “citizen” in the right in the Bill of Rights that every citizen has to choose their occupation freely (s 22, fn 17 above), may be read to include juristic persons. Contract Employment Contractors (Pty) Ltd v Motor Industry Bargaining Council and others [2012] 7 BLLR 726 (LC) pars [12]–[14], [20] and [21] and cases there cited. Africa Personnel Services (Pty) Ltd v Govt of Namibia [2011] 1 BLLR 15 (NmS) pars [37], [40], [44]. (Sed contra, City of Cape Town v AD Outpost (Pty) Ltd and others 2000 (2) BCLR 130 (C).)

[20] Locus standi in judicio.

[21] Anyone acting as a member or in the interest of a group of persons, or in the public interest, or an association acting in the interest of its members, may approach a court alleging a right in the Bill of Rights has been infringed or threatened, and the court may grant appropriate relief. Constitution s 38(c), (d) and (e).

These categories of persons granted standing to seek relief are far broader than common law permitted, entailing a generous approach to standing in the constitutional context. Ferreira v Levin NO and others, Vryenhoek and others v Powell NO and others 1996 (1) BCLR 1 (CC) pars [229] and [230] per O’Regan J.

[22] BEE Act s 13P (Prohibition on business with organs of state following conviction under this Act).

[23] BEE Act s 13P(1). See text accompanying fn 14 et seq.

[24] In its discretion.

[25] I.e., s 13P’s subsection (1).

[26] Of the artificial person concerned, presumably. The provisions are not well drafted.

[27] Presumably, “were convicted of contravening”.

[28] Presumably, the “applicable” provisions.

[29] BEE Act s 13P(2).

[30] See text accompanying fn 14.

[31] The law should be sufficiently clear that a course of action can be based on it. Lord Bingham, “The Rule of Law,” op cit (see fn 15), first sub-rule.

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Gary Moore

Gary Moore BA LL.B. (Witwatersrand) LL.M. (UC London) is a South African lawyer and Senior Researcher at the Free Market Foundation.

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